Question 1

Other things constant,if the Fed decreased the discount rate,

Accepted Answer

A) the earnings of the Fed would increase. 
B) the incentive of commercial banks to borrow from the Fed would be reduced. 
C) borrowing from the Fed will tend to increase and the money supply will tend to expand. 
D) borrowing from the Fed will tend to decrease and the money supply will tend to decline.

Question 2

Suppose all banks are subject to a uniform reserve requirement of 20 percent and that the First Guarantee Bank has no excess reserves.If a new customer deposits $50,000,the bank could extend new loans up to a maximum of:

Accepted Answer

A) $10,000. 
B) $40,000. 
C) $50,000. 
D) $250,000.

Question 3

Money is

Accepted Answer

A) valuable because it is backed by gold. 
B) whatever is generally accepted in exchange for goods and services. 
C) anything that is a liability of a commercial bank 
D) an object to be consumed.

Question 4

Suppose all banks are subject to a uniform reserve requirement of 20 percent and that the First National Bank has no excess reserves.If a new customer deposits $50,000,the bank could extend new loans up to a maximum of

Accepted Answer

A) $10,000. 
B) $40,000. 
C) $50,000. 
D) $250,000.

Question 5

A reserve requirement of 20 percent implies a potential money deposit multiplier of

Accepted Answer

A) 4. 
B) 5. 
C) 20. 
D) 25.

Question 6

When a banker accepts a deposit of $1,000 in cash and puts $200 aside as required reserves and then makes a loan of $800 to a new borrower,this set of transactions

Accepted Answer

A) decreases the money supply by $1,000. 
B) decreases the money supply by $200. 
C) does not change the money supply. 
D) increases the money supply by $200. 
E) increases the money supply by $800.

Question 7

The immediate effect of a member bank's sale of U.S.government securities to the Fed is

Accepted Answer

A) an increase in that bank's required reserves. 
B) a decrease in that bank's required reserves. 
C) an increase in that bank's excess reserves. 
D) a decrease in that bank's excess reserves.

Question 8

Fiat money is money

Accepted Answer

A) that has little intrinsic value and is not backed by a commodity. 
B) that is not included as part of the M1 money supply. 
C) that is backed by gold or silver held on reserve by the government. 
D) such as coins that are made from metal.

Question 9

Money is used as a unit of account.This means

Accepted Answer

A) money cannot store value for use in the future. 
B) money is used to measure the exchange value and costs of goods,services,assets and resources. 
C) money has little or no intrinsic value. 
D) money is dependent on the quantity of gold held by the Federal Reserve.

Question 10

Which of the following lists two things that both increase the money supply?

Accepted Answer

A) the Fed buys bonds and lowers the discount rate. 
B) the Fed buys bonds and raises the discount rate. 
C) the Fed sells bonds and lowers the discount rate. 
D) the Fed sells bonds and raises the discount rate.

Question 11

Which of the following assets is most liquid?

Accepted Answer

A) funds in a checking account 
B) a car 
C) a home 
D) a municipal bond

Question 12

A barter economy is one in which

Accepted Answer

A) money serves as a medium of exchange. 
B) only precious metals are accepted as money. 
C) goods are traded directly for other goods. 
D) paper money is backed by gold.

Question 13

Table 13-1
 
-Refer to Table 13-1.If someone deposits $400 into the First Bank of Mason City,

Accepted Answer

A) the bank will be able to make additional loans totaling $320. 
B) excess reserves initially increase by $320. 
C) required reserves initially increase by $80. 
D) all of the above are correct.

Question 14

Widespread use of credit cards

Accepted Answer

A) will increase the M1 money supply figures. 
B) will increase the M2 money supply figures but not those for M1. 
C) tends to reduce the average quantity of money that people will choose to hold. 
D) tends to increase the average quantity of money that people will choose to hold.

Question 15

In the United States,the purchasing power of money is determined by

Accepted Answer

A) the underlying precious metals that back each unit of currency. 
B) the value of U.S.treasury bonds that back each unit of currency. 
C) Federal Reserve policy,which controls the money supply. 
D) Congress,which controls the money supply.

Question 16

Suppose the Fed sells $100 million of U.S.securities to the public.If the reserve requirement is 20 percent,the currency holdings of the public are unchanged,and banks have zero excess reserves both before and after the transaction,the total impact on the money supply will be a

Accepted Answer

A) $100 million decrease. 
B) $500 million increase. 
C) $500 million decrease. 
D) $100 million increase.

Question 17

The primary source of revenue for the Federal Reserve is

Accepted Answer

A) the interest earned on the bonds held by the Fed. 
B) its annual appropriation from Congress. 
C) the interest earned on discount loans to banks. 
D) the dividends earned on the stocks held by the Fed.

Question 18

Which of the following actions of the Fed would increase the money supply?

Accepted Answer

A) the purchase of U.S.government securities. 
B) a reduction in the discount rate. 
C) a reduction in the required reserve ratio. 
D) all of the above are correct.

Question 19

If debit cards become more widely used by consumers and businesses,which of the following is most likely to happen?

Accepted Answer

A) Currency holdings will remain the same,but the M1 money supply will fall. 
B) The amount of currency held by the public will increase. 
C) Less money will be held as currency and more money will be held in bank accounts,which will increase the reserves of banks unless the Fed takes offsetting actions. 
D) The money supply will be unaffected because debit card expenditures are considered the equivalent of cash.

Question 20

Money is

Accepted Answer

A) whatever is generally accepted in exchange for goods and services. 
B) an object to be consumed. 
C) a highly illiquid asset. 
D) widely used in a barter economy.

Exam 13: Amoney and the Banking System

Other things constant,if the Fed decreased the discount rate,

Suppose all banks are subject to a uniform reserve requirement of 20 percent and that the First Guarantee Bank has no excess reserves.If a new customer deposits $50,000,the bank could extend new loans up to a maximum of:

Money is

Suppose all banks are subject to a uniform reserve requirement of 20 percent and that the First National Bank has no excess reserves.If a new customer deposits $50,000,the bank could extend new loans up to a maximum of

A reserve requirement of 20 percent implies a potential money deposit multiplier of

When a banker accepts a deposit of $1,000 in cash and puts $200 aside as required reserves and then makes a loan of $800 to a new borrower,this set of transactions

The immediate effect of a member bank's sale of U.S.government securities to the Fed is

Fiat money is money

Money is used as a unit of account.This means

Which of the following lists two things that both increase the money supply?

Which of the following assets is most liquid?

A barter economy is one in which

Table 13-1 -Refer to Table 13-1.If someone deposits $400 into the First Bank of Mason City,

Widespread use of credit cards

In the United States,the purchasing power of money is determined by

Suppose the Fed sells $100 million of U.S.securities to the public.If the reserve requirement is 20 percent,the currency holdings of the public are unchanged,and banks have zero excess reserves both before and after the transaction,the total impact on the money supply will be a

The primary source of revenue for the Federal Reserve is

Which of the following actions of the Fed would increase the money supply?

If debit cards become more widely used by consumers and businesses,which of the following is most likely to happen?

Money is